Trump's Tax Cut Proposal Increases Wedge Between Gold and Copper

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  • The 120-day inverse correlation is at the biggest since 2003
  • Bullion is heading for biggest loss in seven weeks on Comex

Speculation about President Donald Trump’s proposed tax cuts is expanding the wedge between the precious and industrial metals.

Gold futures posted their biggest two-day loss in seven weeks amid optimism that a possible plan to cut the U.S. corporate tax rate to 15 percent from 35 percent will boost company earnings. An improving outlook for the U.S. economy is also bolstering the demand prospects for industrial metals used in iPhones, refrigerators and electrical wiring. The 120-day inverse correlation between gold and copper is at the biggest since 2003.

Bullion rallied this year, helped in part by delays in Trump’s pro-growth agenda, tensions between the U.S. and North Korea, and political uncertainties in Europe. With Trump’s team preparing to lay out the details of the tax plan, Goldman Sachs Group Inc. expects the gold sell-off to continue over the near-term as borrowing costs rise and U.S. and global growth looks solid.

“Reports that Trump would propose a sharper-than-expected corporate tax cut have helped to boost U.S. stock prices, which may be helping copper” and curbing gold’s appeal, Tai Wong, a director of commodity products trading at BMO Capital Markets, said in an email.

Gold futures for June delivery declined 0.8 percent to settle at $1,267.20 an ounce at 1:41 p.m. on the Comex in New York, taking this week’s losses to 1.7 percent, the biggest two day slump for a most-active contract since March 3.

Bullion’s fall has also helped spur a sell-off in producers of the metal. A gauge of 15 big global gold miners tracked by Bloomberg Intelligence fell 3.5 percent, poised for the biggest decline since Dec. 15. Barrick Gold Corp., the world’s largest bullion producer, led declines among miners, slumping 10 percent after missing estimates on earnings and production.

Copper futures for July delivery gained 1 percent to $2.591 a pound on the Comex, after touching $2.5985, the highest in a week.

Lowered Forecast

The industrial metal used in wiring and pipes also rose after Freeport-McMoRan Inc., the world’s largest publicly-traded copper producer, lowered its sales forecast for the metal to 3.9 billion pounds, from 4.1 billion pounds, following more than three months of disruptions at the Grasberg mine in Indonesia.

“Supply-side stories have been influencing the short term copper price movement more than the demand side for a while,” Richard Fu, the London-based head of Asia-Pacific at Amalgamated Metal Trading Ltd. “As a barometer of the global economy, copper prices should be supported as the economy improves.”

In other metals:

* Silver futures fell for a sixth day on the Comex in New York, the longest losing streak since November 2015
* Platinum futures fell on the New York Mercantile Exchange, as palladium rose
* On the London Metal Exchange, copper, aluminum, zinc, nickel and lead gained as tin fell

— With assistance by Danielle Bochove, and Eddie van der Walt

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